The U.S. government has informed Israel that it will recommend that Congress approve a three-year extension of loan guarantees to Israel, worth $3.8 billion. The announcement came after several months of worry in Israel that the loan guarantees would not be extended, despite Israel's request.
Deputy U.S. Secretary of State Thomas Nides and Deputy U.S. Treasury Secretary Neal Wolin announced the American decision at a meeting with Israeli Deputy Foreign Minister Danny Ayalon on Monday. According to a senior U.S. official, the two emphasized to Ayalon that the recommendation to extend the guarantees through September 2015 would receive wide support from both parties in Congress and would be approved without any problems in the near future.
"The U.S. is a true friend and ally of Israel," Ayalon said. "The partnership between the two countries is a natural one. Extending the loan guarantees strengthens the international position of the Israeli economy and will allow the government to continue to raise funds at lower costs."
A senior Foreign Ministry official in Jerusalem said that Israel's ambassador to the U.S. Michael Oren filed the official request for the extension of the loan guarantees with the State Department in September 2011. However, the Israel request was not included in the U.S. budget that was approved at the end of last year.
The deadline for the implementation of the agreement is September 30, 2012. This created serious concern in Israel that the U.S. government was not interested in extending the loan guarantees past that date. The Foreign Ministry also feared that the need for separate legislation on Israel's loan guarantees would be met with technical and political difficulties that would not allow for the passage of the law.
Before the arrival of the two American officials in Israel, the Foreign Ministry prepared for a tough conversation and a crisis. However, the two American officials were surprised and quickly clarified that the U.S. government completely supported the extension of the loan guarantees and planned to recommend the extension to Congress.
The loan guarantees agreement between the U.S. and Israel began in 2003, when Benjamin Netanyahu was Finance Minister. At the time, Israel found itself in an economic recession and U.S. loan guarantees were needed in order to raise funds abroad at low interest rates. The scope of the original agreement was $9 billion and Israel last raised money through it in 2004.
The agreement included a clause that the U.S. would deduct the amount of Israel's expenses and investments in settlements over the Green Line. Today, the balance of loan guarantees Israel can take, before offsets, is $3.8 billion.
According to a senior Foreign Ministry official, since 2005 Israel has raised needed funds in the capital market without using the loan guarantees, but the loan guarantees have importance to global credit agencies, who view the loan guarantees as a "safety net" for the Israeli economy.
"We consider the loan guarantees as preparation for a rainy day," the senior official said. "This is a safety net for war, natural disaster and economic crisis, which allows Israel to maintain economic stability in unstable surroundings."